Crypto markets are in turmoil. Liquidity has dried up due to central banks hiking rates due to which trading activity in cryptos has fallen and so have their prices. Consider this: Bitcoin year-to-date return has come down by 40 per cent while Ethereum is down by 50 per cent. Bitcoin is currently trading at $28,954, down from the highs of nearly $68,000. Here is what experts have to say about the reason behind falling crypto markets:
“There is no inherent intrinsic way of measuring the real worth or value of the crypto and, therefore, cryptos were sort of getting priced depending upon the transient demand and supply for the last many months. So, without knowing or without actually understanding this, people were buying. Now, after the end, this was basically driven by very large liquidity sloshing around the world. That liquidity has lifted many asset classes, and this has lifted most of the crypto world. So, people thought of why not invest and make money. Now, when this is being withdrawn when the interest rates are high, you realize that you have no big liquidity to buy assets. There is a lot of pressure to sell now. And that is what explains the crypto meltdown. So, it’s a phenomenon of the perceived demand and supply for crypto as a valuable asset,” said Subhash Chandra Garg, Former Finance Secretary.
Similarly, Amit Gupta, founder and CEO, Fintrekk capital, is of the opinion that the crash in crypto markets is a global phenomenon. “The fall of crypto is a global one. As liquidity has dried up due to central banks hiking rates and dollar index rising, trading activity in cryptos has fallen so are prices. Volumes have dried up and traders (speculators) are booking losses. Coinbase, a crypto exchange platform in the US, recent Q1 earnings reports have shown the sharp dip in retail volumes of trading cryptos even though I must add institutional volumes have remained constant,” Gupta said.
On the other hand, for Nischal Shetty, crypto exchange WazirX’s co-founder and CEO, the primary reasons behind the present crash are macroeconomic factors and weak global cues that are also weighing stock markets down globally.
“The significant dip that is being witnessed in crypto is a global phenomenon. It can be primarily attributed to developments in the macro-environment such as increasing inflation, raising of interest rates by the Federal Reserve, the Russia-Ukraine war, etc. It is also interesting to note that the crypto markets are mirroring the traditional financial markets as both are seeing a correction. It indicates that the crypto markets are attaining maturity – just like other markets, crypto also has a bear and bull run and at present, we are going through a bearish phase,” Shetty said.
Shetty added, “In India, we have witnessed a sentiment of buying the dip as buyers have marginally dominated the market. Since April, this behavior has also been replicated as 75 percent of trading sessions have been buyer-dominated. The buying behavior illustrates that there is still investor confidence in the market even at present levels”.
